Many of us are guilty of jumping on the bandwagon when it comes to investing. Maybe you are focused on artificial intelligence this year, or you were sucked into the crypto hype in 2021, and these trends may have left your portfolio looking like a bag of pick n´mix.

Downsides
Whilst diversification is key in any portfolio, too much diversification can also be a problem and often results in an incohesive portfolio without a clear investment strategy. It also requires a lot of effort, time and research, and can even lead to inefficiency and underperformance as you spread yourself too thinly.

Being overweight in certain areas can create risk, and being underweight can be a drag on your portfolio as positions are too small to make a meaningful impact on returns.

It is also easy to duplicate holdings or even end up with a similar allocation of holdings to that of a tracker fund, just at double or triple the cost.

More pitfalls
As humans, we are also prone to biases. The most common ones encountered when investing are:

• Home bias: this is where we focus on investing within our home markets. Many UK advisers are guilty of this, with a weighting towards the UK market rather than a global approach.
• Recency bias: this is the tendency to react and dwell on recent events and forget the long-term patterns and trends.
• Confirmation bias: we often search for evidence that supports our views and see less value in opposing data. A lack of impartiality is likely to have a negative impact.
• Confidence bias: We are inclined to overestimate our skills as investors. Even with all the money, backing and decades of research at their fingertips, professional fund managers often make mistakes. Can we really perform any better with consistency?

Lastly tax efficiency is often overlooked and can have a huge impact on returns when you consider the benefits of compounding over the years. It might cost you capital gains tax to restructure now, but it will save you from an even bigger tax bill in the future.

What next?
If your portfolio is looking a bit haphazard, start as you mean to go on and regularly set time aside to do full reviews. It is much better to do this in one go, rather than bit-by-bit, as it will allow you to look at the portfolio as a whole and remain consistent.

You will want to look at what you are holding. Are you guilty of ´sunk cost fallacy ´and holding on to stagnant holdings or losses in the hope they will recover, meanwhile missing out on returns elsewhere? Or maybe you need to look at new investment opportunities, revisit costs versus performance, or rebalance.

If you are craving simplicity, utilising passive funds that focus of large markets can offer a good low-cost option with returns that even active fund managers often find hard to beat.

What has happened?

The NHR (Non-Habitual Residence) 10 year tax incentivised scheme to new residents will officially end from 1st January 2024.

There is a new 10 year scheme introduced as a result of the 2024 Budget Law that offers benefits to select individuals. This is aimed at attracting those involved in the scientific research and innovation fields and will apply to those with roles in higher education and specific high value sectors.

Key points

Residency obtained after 1st January 2024

Those who obtain Portuguese residence after 1st January 2024 will not be able to apply for the NHR scheme unless you meet one of the transitional criteria below.

Those who cannot claim NHR status will be subject to the standard rates of Portuguese tax.

Transitional rules: applications open until 31st December 2024

Those who become resident in 2024 may still be able to apply for NHR if certain conditions are met. These are individuals with:

• A promise of employment or secondment, or a work contract before 31st December 2023 and where the work is performed in Portugal
• A contract in respect of purchase, lease or use of property in Portugal concluded before 10th October 2023
• A reservation or promissory contract over a property in Portugal before 10th October 2023 i.e. a `contrato-promessa de aquisição de direito real sobre imóvel`
• Enrolment or registration of dependants in education within Portugal before 10th October 2023
• A residence permit or visa obtained prior to 31st December 2023
• A residence or visa process registered with the relevant authority before 31st December 2023

Existing NHR individuals
Those with NHR already will continue to benefit from the scheme until the end of the 10 year period.

Final words
It is expected that there will a high volume of applications for NHR and for embassy appointments so if you can, take action now.

If you do miss the NHR boat, Portugal can still be a very tax efficient place to live however more careful planning will be needed both before and after your move.

In his Autumn Statement, Jeremy Hunt announced the introduction of an Overseas Transfer Charge (OTC) when higher value UK pensions are transferred to a Qualifying Recognised Overseas Pension Scheme (QROPS).

This is to take effect from 6th April 2024.

The implication
Each individual will have an “overseas transfer allowance” of £1,073,100.

Where the transfer to QROPS exceeds this limit, the excess will be taxed at 25%.

The limit applies to the total value of transfers to QROPS, not per scheme.

For example. Mr A has 2 pensions valued at £900,000 and £600,000. He transfers both of these schemes to a QROPS after the new rules have been introduced. The excess above the lifetime limit is £426,900. This excess is taxed at 25%, therefore the tax due is £106,725.

The result
If you are considering a transfer to QROPS and your pension benefits are close to or exceed £1,073,100, this should be done before the introduction of the new rules in April 2024.

If you would like to understand how a transfer to a QROPS could benefit you or if it is appropriate, please do not hesitate to get in touch.

Non-habitual residency (NHR) is a 10-year preferential tax status granted to new residents of Portugal and it has been a major draw to the country for many years.

The announcement at the beginning of October regarding the proposal for the end of NHR in 2024 was unexpected and has caused quite a stir amongst those who had longer-term plans to move to Portugal, as well as for those who may be concerned about the attraction of Portugal going forward.

The new rules have not yet been finalised and much can change before the 29^th November, but what do we know right now?

The end of NHR?
At the time of writing, the proposal is that NHR will be abolished on 31^st December 2023. However, the government has most recently announced a ´transitory NHR regime´ to ease in the new rules throughout 2024. This will guarantee the right of certain individuals to apply for NHR, but interestingly it also leaves the possibility open for the next government (elections to be held early March 2024) to either continue with the abolition, alter the current NHR rules, or maintain NHR in its current state.

Whilst the future of NHR is still very much uncertain, the transition rules mean that instead of a hard end to NHR at the end of 2023, qualifying individuals can still apply for NHR during 2024. This grandfathering in ensures that those who have been strategically planning their move and making life changes will not be left disadvantaged by a sudden withdrawal of the scheme.

Qualifying individuals are those with:

• A promise of employment or secondment, or a work contract before 31^st December 2023 and where the work is performed in Portugal.
• A contract in respect of purchase, lease or use of property in Portugal concluded before 10^th October 2023.
• A reservation or promissory contract over a property in Portugal before 10^th October 2023 i.e. a `contrato-promessa de aquisição de direito real sobre imóvel`.
• Enrolment or registration of dependants in education within Portugal before 10^th October 2023.
• A residence permit or visa obtained prior to 31^st December 2023.
• A residence or visa process registered with the relevant authority before 31^st December 2023.

Recent and new residents
It is expected that there will a high volume of applications, so if you are a recent resident and have not yet applied, if you receive your residency status before 31^st December 2023, or qualify in some other way as detailed above, apply as soon as you can.

Missed the boat?
More careful planning will be needed for those who move after the deadline has passed or do not meet the qualifying criteria.

As always, planning should ideally start in your originating country so you can make a ‘road map’ to take advantage of any windows of opportunity and tax reliefs in both countries. But the need for effective planning will be even more important with the uncertainty and potential end of NHR as new residents will immediately be subject to the standard rates of tax and will not have the grace period of the NHR period to soften the tax blow if restructuring is required.

Some important considerations for individuals in this position still contemplating the move are:

• If still working, there will be no 20% ‘high value’ activity option and earned income will be taxed at scale rates of 14.8% to 48% (plus the potential for solidarity tax at 2.5%/5%). If you can choose how you are remunerated, it may be more beneficial to opt for dividends which are taxed at 28% and do not attract a social security liability.
• For retirees, a change to the low 10% tax on pensions could affect how or when you decide to access your pensions. Standard residents are generally taxed at scale rates, but the ultimate tax basis does depend on the type of pension.
• Those with large investments should look to restructure as interest, dividends and capital gains (on an arising basis i.e. sale/switch of funds, even if not withdrawn), are all taxed at 28%. There are tax-efficient structures available to Portuguese residents that offer a shelter from tax in the accumulation stage and provide more beneficial rates of tax on drawdown.

Current NHRs
One positive is that those with NHR can retain the advantageous tax status but even so, you should begin planning for the end of your NHR. Some important opportunities exist if you are planning to sell foreign property as the gain is tax-exempt during NHR but taxable afterwards, or if you are drawing tax-free dividends, which will be taxable at 28% post-NHR.

Planning now will allow you to time and control your tax position – this may be switching how income is generated, creating tax structures, or realising capital for the future. Leaving it too late may result in an unfavourable and irreversible outcome.

Not all doom and gloom
Regarding the end of NHR, we will just have to wait and see, but even if 2024 does spell the end of the scheme for new arrivers, Portugal can still be a very tax-effective place to live. With the right structuring, many wealthy Portuguese nationals and expats enjoy the same or even lower rates of tax than under NHR.

Covering a wide range of topics, our workshops aim to give you the knowledge
to make good choices in all areas of financial planning, taxation
and organising yourself for life in Portugal.

November workshops: Pensions

8th and 9th November

An informal round table format, we will be discussing issues such as:

• How different types of pensions are taxed in Portugal
• Where tax should be paid on different types of pension income
• Double taxation and how to avoid it
• Drawdown options and the tax implications
• UK pension changes: LTA abolition, impact on taxation
• Tax planning opportunities: Pre-April 2024 planning window
• QROPS & QNUPS: Do you really need one or should you keep your UK pensions?
• How to pass on your pensions and the implications for your beneficiaries
• Open Q&A throughout

December workshops: Inheritance Tax (IHT), Domicile & Succession

5th and 6th December

An informal round table format, we will be discussing issues such as:

• Portuguese & UK inheritance taxes: thresholds, rules and allowances
• Succession laws: UK rules, Portugal and forced heirship, Wills and Brussels IV
• IHT mitigation strategies and planning ideas
• Gifting: thresholds, rule and avoiding IHT clawback
• QNUPS: does it really shelter UK IHT in practice,
• How to protect family wealth, your beneficiaries and bloodline planning
• How to control family wealth during your lifetime and after your demise
• Open Q&A throughout

The workshops are taking place in two wonderful locations –

The Magnolia Hotel (Almancil) & Boavista Golf & Spa (Lagos)

November workshops: Pensions

8th November 2023
Boavista Golf & Spa,
Quinta da Boavista, 8601-901 Lagos
10am – 1pm (with a coffee break)

9th November 2023
Magnolia Hotel,
Estr. Da Quinta Do Lago, 8135-106, Almancil
10am – 1pm (with a coffee break)

December workshops: Inheritance Tax (IHT), Domicile & Succession

5th December 2023
Magnolia Hotel,
Estr. Da Quinta Do Lago, 8135-106, Almancil
10am – 1pm (with a coffee break)

6th December 2023
Boavista Golf & Spa,
Quinta da Boavista, 8601-901 Lagos
10am – 1pm (with a coffee break)

Sign up for the workshops below

It seems strange to think that gender differences can not only affect the way in which we think about managing our finances but the practical needs and requirements too. But with 60% of the UK’s wealth estimated to be in the hands of women by 2025 (a trend seen throughout most countries) being cognisant of these differences will put you – or the women in your life – a step ahead.

What are the issues?
Even today, studies show that despite 85% of women running household finances, over half of women defer to partners to manage and make long term financial decisions. There are several reasons for this, but a lack of confidence saw women shying away from taking a more active role. With 3/4 of women aged 60 either single, widowed or divorced, relying heavily on a partner can leave them disadvantaged.

Women live longer than men and their finances must therefore last longer. Recent ONS statistics predicted a lifespan of 83.1 years for women, and where planning has not been put in place, or put in place with a male’s longevity in mind, women may find themselves struggling in later years.

Women are naturally more cautious and conservative, but over the long term, such investments have lower growth potnential. A YouGov study showed that 55% of women had never held an investment vs. 35% of men.
80% of companies are paying women less than men. A 2021 study by NEST showed that the average working woman could have a pay gap of £70,000 at retirement. Similarly, women are more likely to have taken time out of employment or reduce hours to care of children and/or elderly parents and relatives. These career breaks not only directly affect income, but can affect promotion or progression opportunities. This has a knock on effect on finances and women are seen to have approx. 51% less in retirement savings than their male counter parts.

These factors mean that women must take a different approach to men when thinking about their finances. This is something investment providers are recognising. For example BlackRock, the world’s largest fund manger, has recently launched investment funds geared at women and aimed at addressing and incorporating the issues women face.

What can you do?
Develop your understanding and relationship with money. Ask yourself why you have certain feelings or views around money. What makes you uncomfortable? When do you feel this? Why? Identifying your strengths and weaknesses will help you on your financial journey.

Make time to set goals and develop your financial plan. Your plan should be specific and realistic otherwise you are setting yourself up for failure.

If you are still working, know your worth. Women negotiate less than men when it comes to pay – 33% of women vs. 43% of men. Do your research, demonstrate your value and remember, if you don’t ask you won’t get!

Invest your money. Saving money is one thing, but how do you build wealth for the long term? The single most detrimental impact on savings is inflation. As things get more expensive, your income and savings must also grow to keep up, and cash or bank deposits are not a good inflation hedge. Whilst investing does carry risk, it provides the best opportunity for inflation beating returns in the long run – an opportunity for women to use their longevity in their favour!

Don’t be afraid of investing and use professionals to help you get it right. Statistics show that women make better investors, often achieving better returns than men. A study by Hargreaves Lansdown showed women’s returns outperforming men by 0.81% over 3 years (over 30 years this would result in a portfolio value of 25% more).

If you are already investing ensure that you review things regularly and pay close attention to your investments. It is not uncommon to see portfolios that have not moved in many years due to high fees or poor performance.

Take control and build your financial confidence. This maybe through education or working with professionals, but it will allow you to identify and take advantage of opportunities, achieve financial independence and peace of mind.

Recent times have been tough for bond prices due to rising interest rates and inflation concerns, but there are signs that the bond market could now offer some interesting opportunities for investors.

The bond market is much larger than the stock market with figures from Morningstar valuing the market at approx. $300 trillion compared with the stock market at approx. $124 trillion, so it is a significant market for investors to understand.

What are bonds?
A bond is simply a loan that an investor makes to a government or company in return for a set interest rate, known as a coupon. For example, if you buy a 10-year 5% US Treasury bond for $100, you are lending $100 to the US government who will pay you $5 each year for 10 years and at the end of the term, you get your original capital of $100 back.

Investors like the predictable income and the relative stability of bond investments. They also complement shares which tend to be more volatile e.g. when share prices fall and investors are nervous, they often flock to the relative safety of bonds, which pushes up the value of bonds to compensate.

There are many bonds to choose from, each with different levels of risk, and therefore return expectations. For example, instead of buying a US treasury bond, you could buy a bond in Apple or BP and because there is more risk in lending to a company than there in lending to the US government, you can expect a higher coupon of say 6% or 7% to compensate for this increased risk.

Recent market issues – an exceptional period
In simple terms, traditionally, the prices of bonds move in an opposite direction to interest rates so when interest rates rise, bond prices fall.

Given that interest rates globally have been steadily increasing for the last couple of years, bond prices have naturally suffered.

One unusual phenomenon we have seen is that stock markets have also performed relatively poorly so we have seen bonds and stocks falling at the same time. This is a very rare event which has only happened three times in the last 45 years and many commentators believe the normal diversification and inverse relationship between bonds and shares will resume going forward.

Last week, we saw that UK 30-year bond yields rose to their highest level since 1998 and similarly, US Treasury yields are at a 16-year high, despite high interest rates. So why is this?

From a UK perspective, the recent mini-budget included tax cuts and increased spending, something that will need to be paid for through increased borrowing. The government does this by selling more bonds. But more government debt without the economic growth to support it spells increased risk for the economy and it is this that triggered a large-scale sell-off of UK bonds, reducing the price and therefore increasing yields.

Looking forward
There are three supporting factors for a positive outlook for bonds:

1. As bond prices have fallen, the yield available to investors has increased substantially which supports bonds and the outlook for prices going forward. As a result, bonds may provide an attractive level of income, and at relatively low risk levels, which has not been seen for many years.

2. Figures from Vanguard, the world’s second-largest fund manager, show that bonds typically outperform cash in the three years following peak rate hikes dating back to 1980. The Federal Reserve, Bank of England and European Central Bank have all signalled interest rates are close to or have peaked already. The consensus is therefore that interest rates and yields should fall over time, and as prices move opposite to interest rates, bond prices should rise.

3. Bonds have historically performed better than shares and cash during recessions. With concerns still lingering about economies entering recessions, bonds could again offer value in a portfolio.

Of course, we always have to point out that history does not always repeat itself and things may happen differently this time, but the alignment of several tailwinds for bonds is a positive signal.

When a bond is not a bond
Please note that there are also tax structures known as “investment bonds” which are not to be confused with the bonds we’ve discussed in this article. Investment bonds are a form of tax wrapper and they are often used by residents of Portugal (as well as being efficient from a UK tax perspective) to hold and manage investment portfolios.

Even with diligent preparation and thorough planning comes a mild sense of apprehension as the big moment approaches.

How many guests will show up?

With explanations, practical examples, and responses to audience questions, our hosts highlighted how to invest securely, successfully and tax-efficiently, adding that professional guidance is (of course) essential for achieving the most favourable outcomes, and avoiding potentially expensive pitfalls.

Richard Flood and Lorraine Reddaway from RBC Brewin Dolphin complemented these presentations with an insight into investor psychology and the behavioural impact of emotional decisions on investment returns – perhaps unsurprisingly, inexperienced investors are often poor decision-makers when it comes to wealth management.

RBC Brewin Dolphin’s approach to stock selection and portfolio construction provided reassurance on the value of professional asset management.

Both seminars were well attended, with many guests requesting meetings for immediate help and advice.

Our team in Portugal are also running two workshops in November:

Covering a wide range of topics, our workshops aim to give you the knowledge to make good choices in all areas of financial planning, taxation and organising yourself for life in Portugal.

With an informal round table format, we will be discussing issues such as:

• How different types of pensions are taxed in Portugal
• Where tax should be paid on different types of pension income
• Double taxation and how to avoid it
• Drawdown options and the tax implications
• UK pension changes: LTA abolition, impact on taxation
• Tax planning opportunities: Pre-April 2024 planning window
• QROPS & QNUPS: Do you really need one or should you keep your UK pensions?
• How to pass on your pensions and the implications for your beneficiaries
• Open Q&A throughout

Even if you are a Non Habitual Resident (NHR) with preferential tax status, UK and Portuguese property will remain taxable on both income and capital gains. However, there are certain planning opportunities you can tax advantage of in Portugal and the UK.

UK property planning
When selling UK property, you can deduct expenses associated with buying and selling the property, including professional fees and fees incurred on the transfer of property, such as stamp duty. You can also add any expenses incurred in enhancing the property to your base cost.

If the property has ever been your principal private residence (PPR) you can reduce or even eliminate the capital gains tax with main residence relief. This ensures that any period during which the property was your PPR is exempt from tax. For example, if you lived in the property for 5 years out of a total ownership period of 10, then only 50% of any gain would be subject to tax.

The property is also considered your PPR for 9 months after leaving the property so you can increase your tax-free ownership period.

UK allowances available
Even if you have left the UK, as a UK/EEA national you can retain your annual capital gains tax (CGT) allowance to offset any taxable gain, although this is reducing – the current allowance is £6k but falling to £3k from the 2024/25 tax year. If you hold property jointly with your spouse/civil partner, you can combine your CGT allowances (and income tax allowances if letting).

Timing is important
If possible, selling when you have not sold other assets will ensure your full CGT allowance can be set against the property gain.

If you are still UK tax resident you can also:

• time the sale when your income level is low, as your overall income level determines which CGT band will apply (18% for basic rate tax payers and 28% for higher and additional rate), and/or
• higher rate tax payers can potentially lower their tax bands via a pension contribution or donation to charity.

Non-Resident Capital Gains Tax (NRCGT)
If you are a Portuguese tax resident, you are able to benefit from NRCGT which is a UK tax concession which states that only the increase in value of property after April 2015 is taxable e.g. if you purchased a property in 2000, any increase in value between 2000 and 2015 is not taxed. This can substantially reduce your tax bill and wash out gains, and as stated earlier, you can still retain your annual CGT allowance.

If you also qualify for NHR there would be no tax in Portugal, which under normal circumstances would otherwise be taxed at progressive rates.

A further planning angle for those with NHR is that, if properties are held within a company, any dividend taken would be free of tax.

You may find the HMRC link useful when calculating your likely liability https://www.gov.uk/tax-sell-property/work-out-your-gain

Portugal property planning
Properties purchased after January 1989 are subject to capital gains tax on 50% of the gain. Property purchased before this date is not subject to CGT. Do note, NHR does not have any effect on the taxation of Portuguese property.

Some expenses are deductible, such as the buying and selling costs. In addition, inflation relief is available in Portugal if the property is held for more than two years.

It is possible to mitigate or even eliminate the taxable gain on a Portuguese main home by:

• Reinvesting in another property within the EU;
• Reinvesting in an approved investment structure; or
• A combination of the two e.g. if you sell a property for €1m, you can downsize into a smaller property for €500k and put the balance of €500k into an approved investment structure. This investment structure can then provide a tax-efficient income for life.

The amount that must be reinvested is the net sale proceeds, not just the gain. Any amount not reinvested is taxable under the normal rules.

There are nuances around these rules so please always seek professional advice. There are also complicated scenarios when selling property held by companies and specialist advice and calculations are required.